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Friday, May 26, 2017

All your Questions about the new GST Bill 2017 in India - Answered!!!

The last
few days have been quite turbulent for the social media ever since the
government declared its intention that the GST Bill is finally set to become a
reality. You may ask me what doesn’t trigger a social media frenzy in India
these days. Anyways, coming back to the topic, there are a lot of news posts
being shared on social media about GST being good or bad (depending on whether the
person sharing the news is pro or anti BJP). The common man as always is lost
for clarity on what is happening around him. So, I wanted to help clarify
things for my blog readers.

Let me
start off by apologizing for the delay. I should’ve written about it a week
back but have been quick busy with work related commitments and couldn’t get to
writing this article until today. The article is structured in a Q & A
format to help answer your questions better. If you have any unanswered
question after this article, pls feel free to comment.

Note: This
is not a politically motivated article. So, pls refrain from posting comments
that are political or abusive in nature or using derogatory language. Thank
you.

1. What is this new GST Bill?

The Indian
taxation system is extremely complicated (Trust me – If you thought that the individual
income taxation slabs & rules were complex, wait until you get into the
shoes of a businessman) with numerous different types of taxes being payable to
different entities like State government, Central government, Customs etc.

This new
GST Bill is aimed at reducing this complexity and make the lives of businessmen
especially the Small & Mid sized enterprises or SME’s easier and their tax
liabilities clearer. The new GST Slabs will replace a whole bunch of different
taxes that exist.

2. What are
these taxes that GST Replaces?

The GST
replaces numerous different indirect taxes that are prevailing in India such
as:

Central Excise Duty

Service Tax

Countervailing Duty

Special Countervailing Duty

Value Added Tax (VAT)

Central Sales Tax (CST)

Octroi

Entertainment Tax

Entry Tax

Purchase Tax

Luxury Tax

Advertisement taxes

Taxes applicable on lotteries.

3. What are
the GST Tax Slabs?

The Goods and Services Tax (GST) will be
levied at multiple rates ranging from 0 per cent to 28 per cent. GST Council
finalised a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower
rates for essential items and the highest for luxury and de-merits goods that
would also attract an additional cess.

10. What are the things expected to be
costlier or cheaper post implementation of GST?

According
to experts, these items could become costlier:

·Cigarette
prices likely to go up as GST rate for tobacco will be higher than current
duties

·Commercial
vehicles such as trucks will become costlier

·Mobile
phone calls may get costlier as service tax will go up

·Textile
and branded jewelry may become costlier

And these
could become cheaper:

·Auto:
Prices of entry-level cars, two-wheelers, SUVs may fall

·Car
batteries likely to get cheaper

·Paint,
cement prices likely to fall

·Movie
ticket prices likely to fall as entertainment tax will come down

·Electronics
items like fans, lighting, water heaters, air coolers, etc. will get cheaper

11. What will be the impact of this GST
implementation?

To start off, that will probably be a
separate article in itself and a lengthy one too. So, am just going to give you
a quick overview of what to expect in the short term.

In the short term it will probably fuel
inflation because many of the commonly used items come in the 5-18% GST slabs
and will pinch our pockets a bit. One surprising aspect of this GST is the fact
that liquor hasn’t been included in the GST purview while tobacco has been included
in the highest tax slab. I agree with the idea of excluding Petroleum as adding
a GST on petroleum will add tremendous stress to our already strained economy but
leaving out liquor does not seem to be a good idea. If tobacco is being charged
at the highest slab in GST so should liquor (PS: This is just my opinion).

In the long run, since the GST will be applied at every step of value
creation it will be very difficult for black money owners to participate
anywhere in the value chain with the GST without accounting for all other
transactions. The GST is estimated to provide an immediate boost of 0.9% – 1.4%
of the GDP.

12. Can you show how this new GST will help a
businessman?

Of course I can.

Mr. Kumar is a businessman who wants to start a business in Chennai. For
this he needs various raw materials which have to be imported from China and
will need to be brought to Avadi where he has his factory by road through
various states. Once he gets down on the process of estimating his costs &
taxes he is a little troubled.

First, he needs to pay a customs duty for importing the materials on top
of the shipping charges. This is fine but there are a lot of other taxes which
he seems to be unable to comprehend. See answer to question 2 to understand
what those taxes are. The list itself is long and imagine Mr Kumar’s
predicament in understanding all those and calculating his tax liability under
each category. I am not even going to attempt to calculate Mr. Kumars tax
liability and overcomplicate things because frankly I don’t understand them
either…

Now, let us assume that the GST is set at 18%. Suppose that the
manufacturing cost of a Product A is 100 and assuming a GST of 18% the total
amount is Rs. 118. The next step of taxation would be when the Product is sold
to consumers, let’s say at a price of 150. So the GST will charge another 18%
on just the difference of Rs. 150 and Rs. 118 i.e. only 18% on Rs. 32 which is
equal to Rs. 5.76. So the final price is Rs. 150 + Rs. 5.76 which makes Mr.
Kumar’s as well as his Tax Auditors life easier doesn’t it? Not to mention the
tax man who is happy to receive the Rs. 18 & Rs. 5.76 GST respectively.

What are your thoughts on this GST? Pls share them in the comments
section in a civil manner. Thank you.

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